What was the main reason for Voltas‘s downturn in the late 1990s? How much of it was due to the changes in the business environment, and how much due to the company’s investment in the refrigerator business?

Voltas was set up in 1954 in Bombay (later renamed Mumbai) as a joint venture between M/s Volkart Brothers and Tata Sons Ltd. This venture took over Volkart's import and engineering businesses. In 1956, the company went public and the Volkart Brothers sold their stake in the company. Up until 1961, Voltas marketed imported products and acted as an indenting agent. In 1963, the company established its first factory at Chinchpokli in Bombay to manufacture ACs and refrigeration equipment. In 1964, Voltas set up a plant at Thane (near Bombay) to manufacture compressors, condensers, chillers, and ancillaries. The range of products was gradually widened to include other engineering, electrical, and agricultural equipment. In 1978, Voltas International Limited (VIL), a wholly-owned subsidiary of Voltas, was set up to handle international electro-mechanical and electrical power projects.

The main reason for the downturn of Voltas was its refrigerator business as. By the early 1990s Voltas was a very diversified group with more than half a dozen of subsidies and most of its business were running in losses and it’s a/c and engineering business were doing well. Until the early 1990, Voltas was a major player in the Indian refrigerator market. In 1993 it acquired Hyderabad Allwyn ltd to capture a larger market share despite the fact that the refrigerator industry in India was going through a bad phase and the demand for the refrigerator in India had shrunk 9% but the business environment in late 1990s was not the major reason for the downturn of the company. The bad business environment did lead to fall in demand and the loss of revenue for the company but its investment policy was the major factor that contributed to its downturn.

Even though other companies dealing in the refrigerators were also affected by this fall in demand but Voltas was the most severe hit because of its huge investment in the refrigerator business. The company had borrowed heavily to finance its large investment in the refrigerator business and the low returns from the business saw the debt double from Rs. 1.65 billion to Rs. 3.3 billion in the year 1996-1997 along with the accruable interest. It was in the same year that the company had for the first time posted a loss of Rs.170 million this led to fall of credit rating and the stock of the company fell from Rs.225 to Rs.21.

The company had to sell most of its real estate and its loss making companies to recover the losses and to pay back the debt which the company had taken for its refrigerator business apart from restructuring the company and laying off employees.